Royal Court of Jersey strikes out application for freezing order over assets held in discretionary trust

In the recent Jersey case of Attorney General v Rosenlund [2016] JRC 062, the Royal Court of Jersey granted an application by a discretionary beneficiary of a trust to strike out the Jersey Attorney General's application for a saisie judiciaire (a Jersey variant on a freezing order granted in support of a confiscation order made in foreign criminal proceedings) over the assets of that trust.

Background

The respondent, Mr Rosenlund, is a Danish national. In 1988 he created a Jersey trust, the Mingo Trust. Subsequently, the trust was varied to include Mr Rosenlund alongside his wife and their children as the beneficiaries to the trust.

In 2012, Mr Rosenlund was convicted of tax fraud in Denmark, and was later sentenced to 3 ½ years' imprisonment and a confiscation order in the sum of c. £2 million was made against him. Pursuant to this confiscation order, the Danish authorities requested assistance from the Jersey Attorney General in recovering the sums due.

Confiscation Orders

According to the case report, as a matter of Jersey law, confiscation orders apply only to the "realisable property" of a defendant. This includes property to which a defendant is beneficially entitled.

A recent decision of the Royal Court (Tantular v Attorney General [2014] (2) JLR 25) had established that a discretionary beneficiary under a trust would not be considered "beneficially entitled" to property, and that a saisie judiciaire would not be able to attach to such assets.

Notwithstanding this, the Attorney General advanced two arguments as to why the Mingo Trust assets should be available for confiscation. The first, focussing on gifts into the trust, was rejected as the gifts post-dating the alleged criminality were de minimis.

The second argument alleged that a transfer of trusteeship in 2008 constituted an indirect gift.

Transfer of Trusteeship and Indirect Gifts

In 2008, the former trustee of the Mingo Trust retired and appointed FNB International as the new trustee. The Attorney General's submissions set out that this transfer of the trust was part of a course of conduct designed to frustrate the Danish tax authorities. The submissions did not, however, call into question the validity of the Mingo Trust, or the exercise of the former trustee's power to appoint a new trustee.

Referring back to a long line of cases, the Royal Court re-affirmed the maxim that "you can only make a gift of something which you own". Despite the influence Mr Rosenlund may have had over the Mingo Trust, he could not be regarded as owning it or its assets. That meant that even if Mr Rosenlund procured the transfer of trusteeship to illegally conceal the trust assets from the Danish authorities, the confiscation order could not attach to these assets. A subsequent breach of the trust would not have rendered the trust invalid or a sham.

The transfer between the two sets of trustees was not a gift from old trustee to new trustee, as it constituted the old trustee complying with its obligation to surrender up the trust property under the Jersey Trusts law. In the eyes of the court, a gift is necessarily something "made voluntarily from your own assets…it is not within the power of a trustee who has retired to decide whether or not to transfer the trust assets to the new trustee – it is obliged to do so".

Comment

Given recent developments and increased calls to reform the regulation of assets held offshore, the summary dismissal of the Attorney General's case in AG v Rosenlund provides a clear reminder that, for now, trust law orthodoxy remains.

The Attorney General had also argued in submissions that the presence of a valid trust would not prevent the attachment of trust assets to a freezing order where the trustee is acting at the request of a criminal, particularly where the trustee knows or suspects the alleged criminality. The Court, however, took the view that this would be unfair to the other, innocent beneficiaries and rejected this argument. Whether the presence of one non-tainted individual as a beneficiary will always be sufficient to prevent a freezing order being granted over assets will remain to be seen, but it does suggest that it will act as a further hurdle to the grant of any such relief.

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